Nov. 10 (Bloomberg) -- Hynix Semiconductor Inc. fell to the
lowest level in three weeks in Seoul trading on concern the sale
of a 20 percent stake in the chipmaker will collapse after the
last likely bidder became entangled in a probe by prosecutors.

SK Telecom Co., the South Korean mobile-phone operator that
indicated it may bid for Hynix, yesterday denied allegations
that the founding family of the SK Group of companies had
embezzled funds.

Hynix shares fell 2.5 percent to 21,500 won on the Korea
Exchange as the fourth attempt in two years to unload the stake
teetered. Shareholders, including state-owned Korea Finance Corp.,
want to offload a stake they gained through a government-led
bailout in 2001, while SK Telecom has been looking to expand into
the $39 billion-a-year market for computer-memory chips to take
on Samsung Electronics Co.

“Concerns that SK may pull out, coupled with continued
weakness in chip prices, are battering the stock today,” said
Han Sang Soo, a fund manager at Samsung Asset Management Co. in
Seoul, which oversees about $30 billion. “If SK steps out, I
think investors should prepare for further drop in share
price.”

The deadline set by Hynix shareholders for bids is 5 p.m.
local time today. The Seoul Prosecutors’ Office searched the
offices of some SK Group affiliates on Nov. 8 to investigate
allegations that funds had been misappropriated. Chairman Chey
Tae Won will prove his innocence, the group said in an e-mailed
response to questions from Bloomberg News the same day.

Futures Investments

Yonhap News reported that prosecutors have been
investigating Chey since May to determine if he used money from
SK companies to reduce personal losses from futures investments.

SK Telecom hasn’t yet made a decision on whether to submit
a bid today, said Irene Kim, a Seoul-based spokeswoman for the
carrier. Lee Sun Hwan, a spokesman at Korea Exchange Bank, which
is leading the sale, said the mobile phone company hasn’t
notified shareholders about its plans.

Hynix had a market capitalization of 13.1 trillion won
based on yesterday’s closing price. If the 20 percent stake
shareholders want to sell fetches 2.6 trillion won, it would
rank the share sale as the largest for a Korean technology
company since 1999, according to data compiled by Bloomberg.

SK Telecom’s interest in Hynix renewed concerns South
Korean business groups known as chaebol were reviving practices
of over-expansion that led to the financial crisis in the late
1990s, Shaun Cochran, head of Korea research at CLSA, said in
July.

Chaebol Model

While supporters praise the chaebol for pulling the country
out of poverty after the 1950-1953 Korean War and transforming
it into Asia’s fourth-largest economy, the International
Monetary Fund cited the debt-driven chaebol model as part of the
reason the nation’s economy landed in a financial crisis at the
end of 1997.

The probe into Chey comes less than four years after South
Korea’s highest court reaffirmed a suspended sentence for him.
In May 2008, the Supreme Court upheld a suspended three-year
prison term for fraud.

The deadline for bids for Hynix was extended twice after
STX Group, which had submitted a preliminary bid along with SK
Telecom in July, pulled out in September. STX at that time cited
global economic uncertainties and concerns over investments
needed to keep the chipmaker competitive as the reasons for the
pullout.

Hynix had a net loss of 562.6 billion won in the third
quarter amid an industry downturn, after posting record sales
and profit in 2010. The chipmaker reduced debt by more than 1
trillion won last year.

Share Prices

In the days following SK Telecom’s announcement it may bid,
analysts at CLSA, Morgan Stanley, JPMorgan Chase & Co. and
Samsung Securities Co. cut their ratings on the stock, while
Daishin Securities Co., Daiwa Securities Group Inc. and Nomura
Holdings Inc. lowered their price estimates.

SK Telecom fell 0.3 percent to 152,500 won, extending its
decline this year to 13 percent. Hynix, which is in its fourth-straight day of declines, has dropped 12 percent in 2011.

Fitch Ratings said in September if SK Telecom buys the
stake with debt, “the company’s credit strength may be
impaired,” echoing Standard & Poor’s July statement that the
purchase would undermine the phone company’s credit rating.